Extortion Won’t Finance Trump’s Wall

On Tuesday, in an unsuccessful last ditch effort to revive his flagging hopes in the Wisconsin primary election, Donald Trump posted to his website a plan to “compel Mexico to pay for the wall.”

The heart of the plan is to threaten to amend federal regulations so that the Department of the Treasury can demand compliance by money wiring services with the Patriot Act’s “know your customer” banking regulations.

Illegal aliens who use these services would not be able to provide documentation that meets the standards required by the regulations and would therefore be unable to remit money to their families in Mexico, an amount estimated by the World Bank at about $24 billion in 2014.

You might think that the plan represents a level of cleverness beyond what we’ve seen from the Trump camp before. But lest you think that The Donald has suddenly had a fresh new idea, a proposal for “remittance status verification” was actually brought to the U.S. Senate, in slightly different form as S.79, in January 2015 by Senator David Vitter (D-LA).

Vitter’s bill strangely would have allowed money transfer companies to proceed with the transfer on behalf of someone who could not verify his legal resident status as long as a 7 percent fine was charged and then passed along to the Consumer Financial Protection Bureau to cover the cost of “enforcement” (though it’s not clear what was actually being enforced since the transfer would still be completed). Collected fines in excess of those costs would go to fund border security. The GAO had many questions about the practicality of this plan.

Trump’s proposed regulation would be stricter, banning transfers by those who cannot prove legal residency. However, Trump’s plan is not actually to implement the regulation but instead to “promulgate a ‘proposed rule’” and then to extort $5 billion to $10 billion from Mexico as a “one-time payment,” following which Trump would call off the regulators and business would be allowed to continue as usual with money flowing across our southern border.

It’s as if Trump gave Vitter’s bill to Dino and Luigi Vercotti and asked how they’d handle it. (Kudos to anyone who gets the reference prior to clicking on the link.)

But even if you liked the theory and even if the extortion plan could be brought to Mexico’s government along the procedural path that Trump suggests, it cannot possibly work. (And neither could Rush Limbaugh’s suggestion, much closer to Vitter’s original plan, to heavily tax remittances in order to, in effect, make Mexico pay for the wall. Limbaugh also referenced prior Treasury moves to restrict — for anti-terrorism purposes — remittances to Somalia, a model roughly the same as Trump’s quixotic proposal.)

The Trump plan’s inevitable failure is not just because when former President of Mexico Vicente Fox said (more than once) that his country is “not going to pay for that f**king wall,” he meant it. It’s not just because Mexico would never allow such a precedent, would never trust Trump or a future president (of the United States or any other country) not to demand another “one-time” payment in the future, and would be smarter politically, if there were a multi-billion-dollar cost to be incurred simply to buy votes directly at home with welfare-like payments to its own people.

No, the impossibility of success of Trump’s blueprint is because the threat of the regulation is made utterly toothless by advances in technology.

Someone cleverer than I will come up with a multitude of other ways that both the Internet and new modes of finance will trump Donald’s best (or worst?) intentions, but here are just two:

Walmart is ubiquitous in Mexico. A Mexican in the United States could easily buy a reloadable pre-paid Walmart MoneyCard and send it to his family, adding funds anonymously (or through a legal resident or citizen friend) and at will. Sure, there’s a 3% fee to use the card overseas, but that’s a small price to pay when the alternative is not being able to help (or be helped by) your family.

Pre-paid debit cards are one good way around The Don(ald), but the platform that may eventually dominate the market for this type of transaction — even in the absence of Trump’s mafia-like scheme — is Bitcoin. Two people can be standing next to each other or thousands of miles apart; they can be best friends or complete strangers; they can need to transfer $10 or $10,000 (or much more). Using Bitcoin they can do so instantaneously and anonymously (or at least pseudonymously), with a near-zero chance of being subject to regulation or taxation, although the service providers for illegal aliens in the United States would charge a modest fee — no doubt slightly less than Doug and Dinsdale Pirhana would extract.

If a Trump-style regulation were to come into effect, a cottage industry of Bitcoin remittance providers would pop up overnight. Costs of and barriers to entry are low, and overhead is near zero… what’s not to like? And lest you think that regulatory hurdles might stunt the growth of the industry, you might check here, here and here.

In one of his first attempts to put meat on the fragile bones of his many populist policy positions, Donald Trump has offered an unoriginal idea that, for many reasons, simply cannot work. Even if it could, however, would Americans accept a plan that turns the United States of America into a protection racket and our president into “the Dapper Don”?

(As a side note, one of the most incredible conclusions of a GAO analysis of the potential effect of Vitter’s S.79 status verification bill is that the Commerce Department’s Bureau of Economic Analysis estimated remittances using methods that are “not consistent with government-wide policies and guidance on statistical practices or with BEA’s own best practices and thus produce unreliable estimates.” As if that’s not enough, when the BEA changed its model based on GAO criticism and the new model produced results substantially different from their results with the faulty model, the BEA then “calibrated” the new model so that its results matched the output of the prior model. As Mark Twain (or maybe Benjamin Disraeli) put it, there are three kinds of lies: lies, damned lies, and statistics. The BEA seems to produce all three.)